Transcripts

Fred Reichheld:
They really forget about whether those profits were earned at the expense of customers or whether they were earned by making customers so pleased that they'll come back for more and bring their friends.

Fred Reichheld, author of the book The Ultimate Question, says businesses have to differentiate between good profits and bad profits.

Every day I see examples of bad profits: I see it when my cell phone company charges me $3.00 for a directory assistance call that should cost 30 cents; I see it when I turn in my rental car and they charge you four times market rates for gas; I even found out closing my brokerage account, there's an account-closing fee of $100 - what is that about?

These types of fees and policies create bad feelings, and companies who understand that, says Fred will grow; those that don't won't.

Enterprise Rental Car decided they were going to get off of this bad profit addiction and make sure that it went away completely. They don't over-charge for gas, they treat people right and Enterprise grew from a tiny little niche player in St. Louis, Missouri to become the largest car rental firm in North America. Southwest Airlines took a similar philosophy in the airlines business to become the largest airline in North America. Companies who understand the cost of bad profits and get rid of them, have an opportunity to grow and beat their competitors up.

At somethingyoushouldknow.net I'm Mike Carruthers and that's Something You Should Know.